When a distributor is terminated by his or her MLM company, he or she may claim breach of contract and seek recovery of his or her past and future commissions. After all, the distributor may have worked for months or years to build up his or her downline only to have its income stream summarily stopped and taken by the company.
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Most Multilevel Marketing companies claim that their list of distributors is a proprietary asset of the company. When a departing distributor uses the list to solicit other distributors to follow him or her to a new company, the MLM company cries foul ball. Indeed, many MLM companies include in their Policies & Procedures provisions acknowledging the proprietary nature of the company’s distributor list (i.e. genealogy) and providing restrictions allowing use only in conjunction with the company’s business.
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Wellman & Warren, LLP has, once again, successfully defended a Federal Trade Commission (FTC) investigation of a Multi-Level Marketing company. Due to the private and confidential nature of the investigation, Wellman & Warren is not able to disclose the names of parties involved in the investigation. The FTC’s investigation centered around the methods in which the company paid commissions to their distributors as well as various income claims made by the company and their distributors.
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By: Scott Warren, David Van Sambeek, Scott Wellman*
There has been a recent surge of enforcement actions by governmental agencies claiming that that certain network marketing companies are illegal pyramid schemes. The most notorious of these recent actions is the action filed by the U.S. Federal Trade Commission (FTC) against Vemma. But this is just one of the actions and investigations brought by both the FTC and the U.S. Securities and Exchange Commission in recent time. In order for your MLM company to avoid the same fate and regulatory scrutiny, it is essential that you (1) gain an understanding of the crucial role retail sales play in the determination of what is a legitimate MLM company versus what will be considered to be an illegal pyramid scheme, and (2) implement any needed changes immediately.
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I just got back from Dallas where I listened as Kevin Thompson shared publicly as well s privately on some of the subject matter he shred in this article. The question of self-regulation .vs government regulation is one we should all be interested in answering. Thompson continues the conversation and raising some great points in the article below…
Without question, self-regulation is better than government regulation. But when you remove the “regulation” out of “self-regulation,” it’s all sort of pointless. In other words, rules without penalties are meaningless.
I was recently speaking at the Association of Network Marketing Professionals conference. It’s at these sorts of conferences where professionals get a sense of what’s really going on in the industry. We all get together, in casual environments, and compare notes about who’s crushing it, who’s cheating and everything in between. The common frustration throughout the years has been this yearning for improvement. People in the industry have a deep, deep desire to elevate the profession to a higher status. But in an environment where “anything goes,” this has been an insurmountable task. The words have fallen on deaf ears, yielding zero progress. After all, how can you elevate an entire industry without (1) a set of rules; and (2) consequences for when those rules are violated. Currently, we’ve got #1 covered. We’re working on the second.
When people ask me how we can “elevate the profession,” the answer is crystal clear: we need to get more serious about self-regulation. It does ZERO good to have standards when it’s easy (and profitable) for people to infringe on those standards with no consequence. In an environment where there are no speeding tickets for driving 90 MPH in a 70 MPH zone, owners are forced to push the envelope, which leads to serious degradation in industry standards. We have good rules (that need to be improved). But once in, companies have never been…penalized. In an article written by DSA President, Joe Mariano, he makes it clear that better days are coming for ethics. In the article, he writes,
In a crushing defeat for MonaVie, an arbitrator in Utah has ruled that MonaVie must pay a former MonaVie distributor $1,215,000 plus cost for wrongfully terminating the distributor’s contract and for breaching its duty to act fair and in good faith.
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As we’ve been building out Thompson Burton over the past few years with my longtime friend and business partner, Walt Burton, there’s one simple concept coined by Jim Collins that’s never failed us: Get the right people on the bus.
Kevin Grimes is the right person. I’m excited beyond measure to be announcing the addition of Kevin to our team!
Kevin and I have a history that goes back close to seven years. Back in the day when I was an in-house lawyer for Orrin Woodward, one of MonaVie’s distributors, I worked closely with Kevin. He was serving as their outside legal counsel on MLM and FDA compliance issues. During those interactions, I came to really respect and appreciate his level of expertise.